The Ship is Hitting the Fan
Trump's tariffs are deliberately re-creating pandemic-era shortages. Get used to seeing OUT OF STOCK on many of the items you're looking to purchase. And paying higher prices for what's available.
If you’re not anticipating empty shelves this summer and into the holiday season, you probably should be. Even if President Trump cancelled every tariff he’s imposed since taking office, Americans would still face higher prices and severe shortages across a rage of product categories in the months ahead.
The Alarm Bells are Ringing
It’s not just Wall Street CEOs like Ken Griffin who have expressed concerns over looming supply chain disruptions. It’s chief executives at major retailers like Walmart, Target, and Home Depot, who have been warning President Trump that his trade policies will lead to empty shelves and higher prices due to the supply chain disruptions they are already causing.
Because retailers padded their inventories in anticipation of coming tariffs, consumers haven’t been hit with higher prices or acute shortages. That’s about to change.
“Prices are steady right now,” the big box CEOs told the president, but “the shelves will be empty” and this “could become noticeable in two weeks.”
With tariffs on most products coming from China set at 145%, many U.S. companies have been cancelling shipments (or refusing delivery) and halting new orders. It’s just not profitable for many businesses to pay a $145 levy to import a $100 product. You can imagine the havoc:
For importers who aren’t able or willing to pay the tariffs on their goods arriving in the coming weeks, that could result in thousands of unclaimed containers of goods at U.S. ports clogging the supply chain, similar to during Covid, said Stein.
“We could have thousands of containers stuck gumming up the port,” said Stein. “It’s going to be a train wreck.”
But we don’t have to imagine it because the chaos already here. Just take a look at what’s happening to import volumes at the port of Los Angeles right now. Instead of the uptick you would normally see at this time of year, cargo shipments are cratering.
And when you look at shipments from China in particular, well….the ship is hitting the fan.
I don’t think people realize just how much they take Chinese-made goods for granted. For example, I was teaching trade policy last week, and I asked my students whether any of them had ordered from Amazon in the last three months. Every hand went up. Then I asked if they’d be willing to share what they’d purchased: a dog leash, kitchen gadgets, a journal, gardening tools, a coffee maker, printer paper, etc. I speculated that almost everything they bought had been imported from China. Many of them looked surprised, but within a few minutes of Googling they confirmed that 85% of what they bought was made in China.
Things are About to Get Ugly
The pandemic-era shortages were the result of an external shock (COVID-19) that threw sand in the gears of our (otherwise highly efficient) global supply chains. Seeing empty shelves was unnerving, and the resulting inflation was painful for billions of people around the world. This time, the sand is being dumped in by choice. It’s an internal sabotage operation, foisted upon the world by a handful of China hawks in the Trump administration.
As a result, the odds of a self-induced recession are rising. (Some CEOs say it’s already here.)
Self-induced shortages and higher prices are already baked in as the number of ships that should be inbound for California are stuck in limbo at Chinese ports. There is no way to escape shortages at this point.
We’re not just hurting ourselves. America’s trade policies are expected to harm the global economy. The IMF recently revised its 2025 global growth forecast down to 2.8%, noting that further reductions are possible if trade tensions aren’t resolved fairly soon.
And while the U.S. and China may be “talking,” it isn’t clear that a deal will come anytime soon. Indeed, we could be a long way from a meaningful de-escalation between the world’s superpowers.
While Treasury Secretary Scott Bessent (rightly) acknowledges that the current impasse is “unsustainable”, he said earlier today that the path out of this mess would need to begin with China:
A de-escalation, which I think the Chinese are going to have to have. Then I think there can be an agreement in principle.
In other words, the ball is in China’s court, which tells me that we could be a long way from resolution. As the U.S. looks to make deals with other nations in the interim, China has vowed to retaliate if those deals are perceived to harm Chinese interests. Chinese officials have referred to US trade policies as a form of "unilateral bullying." This isn’t getting resolved quickly.
Meanwhile, here at home, the vibes are deteriorating.
Even some of the hard data is getting a bit ugly. Apollo’s Torsten Slok notes a sharp increase in the share of people making only the minimum payment on their credit cards, and Lending Tree reports that 25% of Buy Now Pay Later (BNPL) users are relying on the service to buy groceries (up from 14% just a year ago).
In Closing
As Sam Ro highlighted in his newsletter this morning, the hard vs soft data still looks OK for now. But when the ship hits the fan, the hard data will follow the soft data down the toilet. And the president’s already abysmal poll numbers will plumb new lows.
Right now, 72% of Americans believe Trump’s policies will cause a recession. Only 39% approve of job he’s doing on the economy. Barely a third approve of his tariffs, and 53% say the economy has gotten worse since Trump took office.
And if you think those numbers are bad, just wait until frustrated parents find empty shelves where the back-to-school supplies are supposed to be, and holiday shoppers get fed a steady stream of OUT OF STOCK with every click of the mouse. You might not think of President Trump as someone who tacks to the left, but that’s going to be his (ongoing) direction of travel when the merch isn’t there and the ship hits the fan in the coming months.
Tariffs are inflationary, while a trade war is recessionary. Congressional Republicans hope to pass a big deficit busting tax cut next month which could forestall recession but boost inflation. But tariffs raise revenue and reduce the deficit, which will cool down the economy. So, what will the net effect be? What does MMT recommend to Congress and the Fed?
I guess that will depend on the goal of economic policy. Let's assume the goal of Congress is to try to avoid a global recession amidst a trade war. But then, what should the complementary goal of the Fed be? To accommodate or tighten? Wouldn't MMT say "go ahead, cut taxes, don't let the 'deficit myth' get in the way; raising interest rates aren't the answer for tariff-induced supply-side problems, so let interest rates drop"? If so, then the deficits from tax cuts would be financing U.S. consumers to keep buying imports with tariffs, while other countries import less from the U.S. with their own tariffs. While big tax cuts and a loose Fed may avoid a global recession, it sure would worsen the trade and fiscal imbalances. So, please tell me: what is the goal of economic policy today? Have we even defined the problem? Does policy even fit the problem? Do economists even agree on what the problem is?
If the problem is correcting structural trade imbalances, why not forget tariffs, lower interest rates, and let the dollar fall 30% to where it was in 2010? Do economists even agree that eliminating structural trade balances is a good idea in a highly integrated global economy? If so, is having the dollar serve as reserve currency for the world the root cause of the problem (per Triffin's Dilemma)?
As Einstein said, "if I had but one hour to save the world, I'd spend the first 55 minutes defining the problem." Isn't the herd mentality of the economics profession, which cheered the glory of free trade for decades while ignoring the social costs of lost jobs and whole communities in the U.S. part of the problem? Can't economists unite around a positive vision for this country? Can Stephanie help in this task? We seem to be sleep-walking to disaster.
Not even to mention the credit scores and incomes of the millions of student borrowers the Dept. of Ed. is planning to go after.... I bet you $5000 they're gonna start sending out those "DOGE Dividends" or "Baby Bonuses" by the end of the year in an effort to win angry voters back.